Did you detect it? A flash of blue sky, a hint of warmth and now the first green buds – tightly closed but clearly visible – on trees and shrubs. It feels like Spring is round the corner and, I hope I’m not stretching the analogy, if I suggest that the same green shoots are emerging for the economy.
Of course the headline figures still make for disappointing reading. Figures published by the Office for National Statistics showed GDP shrank by 0.3% in the last three months of 2023, notching the second consecutive quarterly decline and putting us into technical recession. However, that is not the whole picture.
The economy has already defied expectation. In November 2022, one month after Rishi Sunak became Prime Minister, the Bank of England forecast “the longest recession in 100 years”. That did not prove to be the case and overall the economy grew (albeit by a small amount) over 2023.
Appearing before the Treasury Select Committee last week, Andrew Bailey, Governor of the Bank of England also said that “there was a stronger growth story ahead” and “we have seen some signs of an upturn”.
This is corroborated by the International Monetary Fund who forecast that the UK will be the fastest growing European G7 economy between 2025 and 2028, not least because of the strength of its tech sector, which is a dynamic presence in our own local economy. The UK is the only G7 nation to have full permanent business expensing. Over 200 business leaders – including from companies such as Airbus, Astra Zeneca, and Toyota – said “this would have the single most transformational impact on business investment and growth and accelerate industry’s transition towards net zero”.
Moreover, although inflation has not budged much for a month or so, it is now 60% lower than its peak (4% from 11.1%) and on track to fall towards its 2% target. There is now a strong expectation that headline interest rates will also start falling, bringing mortgage rates down.
The last few years have been particularly difficult. The once-in-a-lifetime pandemic came at a huge cost, that was then compounded by war in Ukraine and an energy crisis. But as the green shoots emerge, there’s an opportunity to reduce the tax burden in the forthcoming Budget.
The Chancellor began this work at his last Budget in November with a cut in National Insurance (from 12% to 10%), saving the average worker £450 per year and full capital expensing allowances to help British businesses grow.
Sound economic management necessitates a continued focus on reducing national debt, which is on track to fall over the forecast period. However, I believe the narrow headroom that exists should be focused on working people and helping hard-pressed families to manage living costs.
I am already delighted by the comprehensive childcare support that will be launching in April and what this will mean for working families. I hope the Chancellor will bring forward further ways to support them in next week’s Budget.
